Directors not vicariously liable for crime of company – Supreme Court

M/s. Thermax Ltd. & Ors. Vs. K.M. Johny & Ors. (Supreme Court)

In the appeal case 'M/s Thermax Ltd vs K M Johny', the Supreme Court stated that "though civil law recognizes the principle of ‘vicarious liability’ of directors of companies, the concept is not acknowledged in criminal law."

In this case the company was accused of criminal offences and the directors were also named in the complaint case moved by a contracting party due to disputes over the termination of the agreement.

Earlier the Bombay high court had allowed the prosecution to proceed.

On appeal, the Supreme Court quashed the complaint and set aside the high court order.

The Supreme Court stated that there was no specific allegation against the members of the board of directors or senior executives but they have been roped in for being in the management of the company.

The offence of cheating and misappropriation of property could be filed only against the company and not against the persons in such circumstances, the court said. Provisions of the Negotiable Instruments Act and the Industrial Disputes Act cannot be imported into the offences under the Indian Penal Code, the judgment explained.



From India, Pune
This will become a landmark decision of the Apex Court. rajanassociates Pls see
From India, Bangalore
Dear All
In above case there has been no direct connection between company accused of the crime and its director (SC observation), the reason the case must have lost was because the malice in the intention of the Directors of the company could not be proved.
I doubt if this has set a right precedent, I am sure a strong case of similar nature will be decided by the bench and then this judgment of SC will get quashed
But then again much cannot be said as there is no copy of judgment available.

From India, Mumbai
This judgement is very good for an employer as it help top management to concentrate/focus on important issues and relieve them of getting entangled in legal cases on which they normally have no control.
Thermax has its plant at Baroda and the management appears good good to me, the infrastructure was also fine. I appeared for an Admin Position two years ago.
Any ways, thanks for the post.
Manish S Joshi

From India, New Delhi
Confusing judgement. If company is responsible, again the Directors are part of the Company. Pon
From India, Lucknow
Dear Pon1965
The judgement is not confusing, because the judgement says that the director is not liable vicariously for the act of the company because no evidence could be put forth showing a connection between the company and its director.
This judgement doesnt mean that no Director is liable, all it means is no director is liable vicariously for the act of company especially the malice in mind of directors and its correlation with act of company cannot be proved.

From India, Mumbai
Mr. Octavious is right. This is what the judgement actually mean. I am going through the judgement, then i will be in a position to explain clearly. -Kamal
From India, Pune
Hello Kamal Prasoon Sinha,
A good topic/case study for discussion in this Forum.
Like Octavious mentioned, what the SC judgement was trying to do--at least to the extent I can understand it--was to DIFFERENTIATE between a 'carte blanche' linking of any/all director(s) with the actions of the Company through the Executives AND the Directors actually involved in the day-to-day operations of the Company.
This aspect came out clearly in the Satyam case after Ramalinga Raju's confession, when many Directors staying in the USA were brought into the picture.
Pl do share the details of the judgement.

From India, Hyderabad
Please consider the following question and answer my questions:
A written complaibt has been given by the canteen contractor of a company to the police against the company. Accordingly, the Factory Manager and Senior Manager-Personnel (Head of the user department since canteen is uncer Personnel) have made a plea for anticipatory bail in a court of law. Their bail plea thereafter has been rejected at the High Court.
1. What will be the consequence?
2. Is this case against the person or the position? What will happen if the Factory Manager resigns at this juncture?

From India
cant say anything unless i know the whole case. If Hon. High court has rejected the anticipatory bail, then i believe that there must be some serious offence committed on the part of the company.

From India, Pune

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